Nonprofit Accounting Blog – Page 22

Financial Checklist for Non-profit Organizations

Non-profit organizations have a duty to be financially responsible and transparent for their board, themselves, their stake holders, and the government. This is no easy task, but a little organization can go a long way in helping non-profits to have success with regards to their finances and financial reports. This week’s focus is on keeping all of the necessary tasks organized and methodical, but you can visit here to learn more general information about what makes up an effective financial report to get you started.

It is easiest to stay current on needed accounting tasks by splitting them into what needs to be done more and less frequently. A checklist can help guide your organization in knowing what tasks need to be done and when to keep financial information up-to-date and ready for needed submissions to the government and people involved in the organization. Beck and Company Certified Public Accountants and Business Advisors can assist you with this and with your ongoing nonprofit and accounting needs.

Daily and Weekly Reminders to Keep at the Forefront

Each day’s tasks and meetings are established and prioritized (important ones are done first and others are scheduled around them).
The organization’s goals and mission should be reflected in and aligned to the work done.

Monthly Financial Checklist- Focus on the Budget and Collaboration

Review and compare budget projections and actual results: This will help you be sure that your revenue is sufficient to take care of expenses and will clarify how last month’s financial activity will impact future months.
Make adjustments based on these results: Your review and comparison should lead you to make immediate decisions about future actions based on your data.
Trim the budget’s fat: Analyze each line item to cut unnecessary or underutilized expenses.
Analyze costs as a team: Meet together as a budget task force to make decisions regarding variable costs to either remove them completely or determine if they should become fixed costs. Focus on budget efficiency without compromising the quality of your organization.
Submit grant proposals: Be aggressive in seeking more funding not only to sustain your organization but also to expand it.
Collaborate: Look for businesses and other non-profits to form partnerships with. Businesses with shared interests may support your cause, and other non-profits can be a great source of shared networking and fundraising efforts.

Quarterly Checklist- Focus on Important Board and Government Accounting Requirements

Report payroll taxes to the IRS: Submit the required Form 941 which is the employer’s quarterly federal tax return.
Prepare financial statements for the board: Knowing the current financial status for future planning and to fix potential finance problems is essential.
Submit financial status reports and progress reports for government grants and contracts: The government expects to know the current state of expenditures and what has been accomplished versus what was expected to be accomplished.
Meet with the board: It is a federal requirement to meet with the board of directors at least four times per year.

Annual Checklist

Submit Form 990: This annual information report should be submitted to the IRS to report on financial activities, sources of income, and spending.
Release payroll reports: The Social Security Administration, IRS, and the employees need to know this information. This could include Form 941, W-2s, W-3s, and 1099s.
Get an audit of your financial statements: A CPA’s audit will serve as a second opinion regarding the validity of your finances and adds credibility to your accounting practices.
Create next year’s budget task force: Seek out staff and board members skilled to contribute to the assessment of the budget.
Organize a grant and contract application team: This important team researches, develops, and submits these applications for your organization.
Re-evaluate your goals: Prepare for your annual board meeting by evaluating achieved, ongoing, and new goals that should be put into place.

In addition to resources such as this financial checklist, we offer many nonprofit services to organizations just like yours. We would be happy to assist you with your specific needs.

Achieving Your Small Business Budget Goals- Part 2: Setting Profit Goals

Last week, we took a look at why any small business needs a budget and how to create one. Whether your company has just put a budget in place for the first time or is just in need of an overall budget revamp based on lacking profits, the following guiding questions are for you. They will help you set and achieve those goals so you can get to a place of maintenance and revision for your important financial decisions. Once these goals are set in motion, you can focus on revising and responding to ever-changing financial happenings as they occur with the peace of mind knowing you have a budget and profit goals to keep you on track. Beck and Company Certified Public Accountants and Business Advisors have been helping small business owners just like you with this process for years. We want to help you set and achieve business goals, too. Please contact us for a free accounting consultation.

Now that you have a working budget with clear figures to work with, ask yourself some important questions that will help guide you as you make initial revisions. These will assist you with further decision-making conversations as a team to set goals.

Here are some example questions to get you started:

What is the desired overall profit? What sales will be needed to achieve these desired returns?

After an initial budgetary plan is in place and all of the financial figures are together in one spot, an increase in profit should be the first consideration you make when you think about the prospects for your small business and make tweaks. The first draft of a budget often uncovers problems and suggests choices that will need to be made. Working up additional budgets after the initial one using the answers to your guiding questions will help you determine a workable plan with future goals in sight. Think of it as a map that helps you stay on the right path. To truly achieve profit, be sure this map leads you to returns on your services/products AND a return on your investments while also factoring in expenses and taxes.

What fixed expenses will be necessary to support these sales?

Once you have decided on your targeted profit, you’ll need to make sure it can actually be achieved. To do this, you must project your fixed expenses. Regardless of sales, fixed expenses stay the same. These could include insurance, rent, property tax, wages paid to salaried employees, depreciation of equipment, interest on borrowed money, maintenance costs, and office expenses among other factors.

What variable expenses will be incurred in producing these sales?

Again, profit goals are not realistic without factoring in projected expenses including variable expenses. Unlike fixed expenses, variable expenses do vary with sales. These could include but are not limited to cost of labor, sales commissions, payroll taxes, insurance, advertising, marketing, and delivery expenses.

How do taxes factor into our overall budget?

Keep in mind that taxes have to be included to have a realistic outlook on expenses versus profits. As you set profit goals for upcoming years, keep in mind that the larger your goal means the larger the amount of funds needed to account for taxes. We can help you determine the tax amount to account for regarding taxes.

Now that you have considered all of these questions and the factors that figure into your overall small business budget, determine if you have a workable budget. Your overall expected income will tell you if you are able to achieve your profit goals. This is done by calculating the difference between sales and the total of fixed and variable expenses in addition to taxes. For further assistance with the many components that go into determining a budget that is realistic and allowing you to achieve your profit goals, contact Beck and Company CPAs.

Achieving Your Small Business Budget Goals- Part 1: Budget Creation

As we previously discussed, having an effective and yearlong budget that is consistently being reviewed and updated is essential for your small business. If your business is not at a maintenance stage in budgeting because you lack a budget, the following recommendations will help you get started. They will offer insight into understanding the rationale behind the process/need and will help with initial action steps in creating such documents. Beck and Company Certified Public Accountants and Business Advisors have extensive experience in helping small business owners just like you with these essential tasks. We offer free consultations to help you achieve your financial goals.

Budget: What is it and why do it?

Definition: Before getting started with the action steps, it is important to know why what you are about to do is important. A budget is a tool that helps you deal with the future and turn expectations into reality. It allows you to set goals and list the necessary steps to reach those. It helps you think about what you really want from your business in the future.

Purpose: By planning, your business is in a much better position to act in prevention of possible crises instead of react to actual crises that may have already done damage. Having a detailed plan with listed future receipts and expenditures creates a guiding framework of projected profit and loss. This can then be used after a designated period of time to compare actual results with anticipated goals. The resulting decisions from this data can lead your business to greater success. For example, if some of your expenses were higher than expected, look for ways to cut them. If you’ve fallen short of goals, you will need to look for ways to increase income.

Action Step #1: Start by Creating a Budget

If you have not already done so, starting with the creation of a budget is a vital first action step. Now that you know more about what it is and why your business needs one, working up this document will help you clearly determine whether or not your profit goals are within reach. It should be written down with a focus on determining what is essential and non-essential to your business. Be sure to set realistic parameters.

Not sure where to begin? There are two common methods you can choose from. You can start with a forecast of sales and work down. Conversely, you can start with a forecast of profits and work up. The latter is more common. In this method, you should decide what profit you want to make and then list the expenses that will be incurred to reach that predetermined profit. For more tips and further details from Beck and Company CPAs on this initial process, visit here.

Action Step #2: Determine if Your Present Profit is Sufficient

Before being able to truly use your newly created budget effectively, you have to be sure that your current profit is what it should be. At the end of the year, it should be large enough to make a return on your investment and a return on your own work (pay you a salary). Do you actually make the same, if not more, than you could working for someone else doing the same thing? In addition, does this profit include a return on your investment into the company? That investment includes the money you put into the firm when you started it and the profit of prior years which you left in the firm (otherwise known as retained earnings). Don’t neglect the importance that taxes play into your overall totals so that you truly are making a profit.

Now that you know what you made last year through your newly created budget, you are ready to set goals for the future of your company. Stay tuned next week for a further look at setting and achieving these goals. Need more assistance before moving on to future profit goals? Beck and Company CPAs would be happy to help you. Please contact us.

Effective and Yearlong Small Business Budgeting

By this point in the year, it is likely that your small business budget for the year has been set and is simply filed away for now. Although it is often the case that budgets are not reviewed until the process of creating the one for next year begins, this can cause problems because businesses are not static so their budgets should not be either. Unexpected situations and cash flow issues can derail even the best of well-planned budgets. Instead of thinking about your budget as a task to complete before the start of each year, think of it as an ever-changing and dynamic document that carries serious weight for your business all the time. If your small business is not only in need of more consistent budget revisions but needs a budget overhaul, here are some suggestions for understanding what constitutes an effective business budget.

Do you need assistance in addressing and optimizing your specific business processes including budgeting? Beck and Company Certified Public Accountants and Business Advisors can help through our Client Accounting Services. In addition to the personalized consulting we provide, the following are some recommendations that can keep you on the track financially all year long.

Make Monthly Updates and Changes to your Budget

Are your expenses in line with projections or are there line items that need cut backs to stay on track financially? If you have trouble answering questions like this, it is probable that you need to review the budget more often. A monthly review and update of your budget allows unexpected situations to be resolved in a timely matter and will help you focus on real-time data not projected financials. Through a monthly review, you can make changes to your budget and see the impacts these have on income and profits. These changes can have a positive impact in a timelier manner. Use current business performance and expense information to inform immediate and future planning decisions. This does not mean that an annual budget review isn’t important, but it does mean that these monthly reviews can offer more insight into an annual review.

Expect the Unexpected- and Respond!

As changes are made within your own company, be in tune to what impacts these have overall. Be prepared to make adjustments especially when unexpected circumstances surface. Just as your company goes through various ebbs and flows, it is important to remember that your clients experience the same. Adjustments made to a client’s budget can impact yours and vice versa. Be prepared for reductions in revenue and reductions in how much a company does business with you. Be strategic in finding new business to make up for these losses while still considering how this could cost you in terms of marketing and hiring costs.

Consider Linking Incentives to Budget Performance

Are you having trouble or do you anticipate having trouble getting everyone on-board with a more active budget? In the process of concentrating on and interacting with the budget more often, consider tying incentives to this new practice. Set parameters when you plan annually for how performance and lowering/maintaining expenses will be tied to profit and how this impacts bonuses.

If these tips leave you with more questions than answers, it may be that you’re not quite in a place as a business to be developing techniques for maintaining and updating a financial plan. You may be more in need of creating a budget or transforming it to truly reach your profit increase goals. If this is you, be sure to stay tuned over the next couple of weeks as we dive in deeper to budgeting, increasing profits, and reaching financial goals for small businesses. In the meantime, contact us here at Beck and Company CPAs for assistance with your overall business process optimization.

Tips for a Successful Non-profit Financial Audit

Nonprofit organizations undergo financial audits for a variety of reasons. In addition to being in compliance with various covenant and membership requirements, audits also provide an organization with tools that can help with best practices and offer accountability to the institution. Just like the notion of having surgery, the idea of undergoing a financial audit can be less than appealing. At the same time, it is important to focus on the significant value that results. Here at Beck and Company’s Certified Public Accountants and Business Advisors, we can help you properly prepare for an audit and make the process less painful and more beneficial. We offer an array of auditing services to assist you.

How can your nonprofit prepare for, manage, and benefit from a financial audit? The following tips offer suggestions to do just that.

1. Before the Audit- The Pre-Op:

Advanced preparation for your audit is essential. Your team should create and use a list of items that will need to be prepared before the auditor arrives. Having all of the necessary documentation ready for the auditor saves time and money in addition to resulting in less staff distractions during the actual audit process. Through many years of auditing and assisting nonprofits with this process here at Beck and Company CPAs, we have compiled a list of task items designed to help you successfully prepare for an upcoming financial audit. You can access it here. Remember that auditors are likely to request additional reports and information based on what is initially supplied. These requested reports should be added to the preparation list for the following year.

Choosing the right professional who will work with your company is extremely important. Just like choosing a competent surgeon that specializes in what needs to be operated on, you’ll want to choose an auditor that you feel comfortable with and who is experienced at working with not-for-profit organizations. Think of your choice in auditor as a partner not a distant professional.

In the preparation process, be clear about deadlines. The time frames for your audit are crucial. If bank submission, board meeting, audit committee session, or grant deadlines need to be met, be sure to communicate these to all teams involved and do this early on in the process. Clear communication eliminates surprises and delays.

2. During the Audit- The Surgery:

Similar to the notion of having surgery without the surgeon present, the greatest efficiency and most useful results come from maximizing your time with the auditor. Be sure to get as much done and as many questions answered while the auditor is onsite. If there are any open items that cannot be accomplished, set completion deadlines before the auditor leaves.

3. After the Audit- The Post-Op:

The most significant aspect of an audit is what results from it just as the results of surgery are why you had it in the first place. Without following recovery and therapy instructions, a successful operation still will not produce the intended outcome. Similarly, an audit will not be beneficial to your organization without implementing changes and using suggestions to make improvements. The most valuable part of an audit is often the management comment letter. It should highlight areas of control deficiency, concerns, and needed improvements. The implementation of changes, as appropriate, are the central benefit that an audit affords your organization. In addition, the results can help make future audits even smoother in the upcoming years.

Beck and Company CPAs have helped many nonprofits prepare for annual financial audits and would be happy to assist you as well. Please contact us and request a complimentary audit services consultation by visiting our website.

An Update on 2013 Form 990

Last year, the Internal Revenue Service (IRS) revealed significant changes to the Form 990, resulting in wide-spread confusion among non-profit organizations regarding what they needed to include in the form. Over the past year, our certified public accountants have worked with a variety of non-profit and government organizations to ensure the proper disclosure of financial assets and information. We’ve worked particularly hard at demystifying Form 990 and helping organizations understand the purpose and significance of this form.

In March, the IRS announced more changes to Form 990 and 990-EZ to modify and clarify certain financial reporting requirements. While it may seem like significant changes have been made to the form, the majority of revisions and clarifications have been made to the instructions of the form (rather than the form itself). There aren’t any large-scale changes or additions to the information non-profits have to report on in Form 990. This is good news for non-profits who’ve just had to relearn Form 990!

In an effort to help you understand the changes made to the forms (and their related schedules and instructions), we’ve created a list of the most significant changes below. For a full list, view the changes on the IRS website.

The general instructions clarify that a short period return CANNOT be filed electronically unless the “initial return” or the “final return” box is selected in Item B. As a result, a short period return that results from a change in an organization’s accounting period MUST be paper-filed.
The instructions clarify the specific documentation needed to support a name change, termination, merger, dissolution or revocation of exemption. These documents must be attached to – and filed with – Form 990.
The instructions for Part VII Clarify that directors’ compensation for non-director independent contractor services to the organization and related organizations must be reported in Section A.
Appendix E to the Form 990 instructions has been updated to clarify that the public inspection and disclosure requirements apply to both the original returns and amended returns.

If you are confused about the changes to 2013 Form 990 or would like some assistance filling out the form, contact our CPAs today. Our tax services are designed to help you file all of your non-profit-related forms with peace of mind.

Cloud Computing and Accounting: What You Need to Know

Last month we introduced Cloud computing and how it differs from traditional on-premise solutions. Unlike on-premise software, Cloud computing requires no hardware and little to no maintenance, making it an ideal solution for companies and non-profit organizations who can’t afford to have a full-fledged IT department on staff. Now that you have a thorough understanding of what Cloud computing is, we’d like to discuss how businesses and non-profit organizations can use Cloud-based solutions to manage their accounting tasks.

Cloud Solutions are Rising in Popularity

Businesses and non-profits are constantly on-the-go and, in order to remain effective, need to have instant access to their operational and financial information. The progression of technology has made it possible for business executives and non-profit leaders to send emails from airport lines, check bank balances on mobile phones, and view reports on tablets and similar devices. As more and more organizations move to a more mobile framework, having access to your accounting software from any location at any time will be a key factor to your success.

Cloud computing is on the rise, as recent surveys have revealed. In fact, according to a recent study performed by IBM, 13% of organizations have successfully implemented Cloud technology and 21% are currently moving to the Cloud. The study also revealed that 90% of the companies and organizations surveyed are planning to use the Cloud in some capacity within the next few years. To say the Cloud is growing is an understatement; it truly is exploding onto the business and non-profit scene.

Benefits of Cloud Accounting Software
While it’s never a good idea to jump headfirst into technology trends, Cloud computing has made a name for itself as a reliable solution for both businesses and non-profit organizations. Before you decide if the Cloud is for you or not, however, you need to be aware of some of the key benefits, particularly related to accounting. Take a look at the benefits of pairing Cloud computing with your accounting software:

Instant access to important financial information and reports. With Cloud-based accounting software, you can access and edit your financial information from any location at any time. All you need is a connection to the internet. This allows you to have full visibility while you’re on the road or simply away from the office.
Improved performance. Cloud computing allows businesses and non-profit organizations to support the changing demands in financial strategy. Users can generate financial reports in real-time, providing them with enough information to suggest new approaches for improved performance.
Easily customizable. Cloud-based software is easy to customize, allowing you to build a solution to strategically meet your business or organization’s needs. Because Cloud-based accounting software is offered on a subscription-based model, it can be scaled down (or up) depending on your needs at the time. This makes the Cloud desirable for many non-profits and businesses.
Improve multi-company management. Many businesses have multiple entities, and it can become difficult to financially manage the entire business. With Cloud accounting software, you can access financial records from each company instantly. Users can hone in on information from a particular company or view it all simultaneously. With the Cloud, creating reports and reviewing information for multiple companies is a lot easier.
Reduced costs. Unlike on-premises accounting solutions, Cloud-based accounting software does not require any extra hardware. This helps companies and non-profits gain more control over their expenses and allows them to redirect their money to more important ventures, such as new programs or products.

If your business or non-profit organization is interested in Cloud computing, give us a call today. We offer a variety of technology consulting services to help you invest in technology that will truly make a difference. Stay tuned for more information about the Cloud and how it is impacting businesses and non-profits all around the world.

5 Small Business Bookkeeping Tips to Keep Your Records on Track

Today’s small businesses face unique challenges compared to their big business counterparts. Due to smaller staffs and limited financial resources, many small businesses struggle to maintain the day-to-day tasks associated with basic bookkeeping and financial management. With a little effort and education, however, small businesses can begin to excel at financial management and bring some organization back to their accounting books. In our work with small businesses in the Washington D.C. and Virginia area, we’ve uncovered the most common small business bookkeeping mistakes. The following tips are designed to help you fix these simple bookkeeping errors and get your accounting back on track:

Maintain daily accounting records to improve accounting accuracy. Accounting shouldn’t be a once-a-week activity. To gain a true understanding of your business’ finances and to ensure financial reporting accuracy, you need to be maintaining daily records of your business’ finances. With the right accounting system in place, this doesn’t have to consume too much of your time. In fact, simply devoting 10 to 20 minutes a day to basic bookkeeping tasks can do wonders for your business.
Use the right accounting system for your business. No accounting software is perfect for every business; that’s why we suggest exploring your options and choosing the software that works best for you. Specialized small business accounting software, such as Sage MIP Fund Accounting or Blackbaud, can help you streamline your accounting processes; however, basic accounting systems such as Quickbooks can be equally effective. Take the time to determine your needs in an accounting solution and choose the most cost-effective solution to fit your needs.
Review bank statements on a monthly basis. Most banks provide bank statements with a month-end cutoff, making it easy to gain a complete month-to-month view of your business spending. Synchronizing your bank statement with other monthly records will make it easier to reconcile your statement and keep a close eye on business expenses.
Implement a detailed check handling policy. Checks should be handled with the same amount of care and attention to detail as cash. Don’t toss canceled checks in a drawer and forget about them – dispose of them correctly. Canceled checks are as good as cash, and if something goes wrong, your business, not the bank, is responsible. Make sure you review all canceled checks before anyone else in your business (including your accountant and employees) sees them. This will help you catch unauthorized checks and prevent fraud from occurring.When signing checks, be sure to sign them with a distinctive signature that would be difficult to forge. If you are a partnership, consider having at least one partner co-sign all of the checks for added protection and accountability.
Create an audit trail. Effective small business bookkeeping requires you to be able to quickly and easily retrace your business’ financial activities. Most current accounting systems have audit trail capabilities, but if your accounting software does not, you may want to consider investing in a solution that does. In addition to maintaining an audit trail in the accounting software itself, make sure all of your financial files are organized. Keeping your invoices and checks in numeric order and not skipping invoice or check numbers can help you keep track of your finances, as can maintaining separate bank accounts for business and personal use. Chances are, if you can’t go back a year or two and reconstruct your business’ finances, your audit trail is not effective.

Stay tuned to our blog for additional small business bookkeeping tips. If you could use some help organizing your accounting books, give us a call today. We offer a variety of small business accounting services to help you create clear and accurate financial records.

Internal Controls for Businesses and Non-profits, Part 2

As we discussed last week, establishing and maintaining strong internal controls is important for any business or non-profit organization. In order to effectively reduce the risk of fraud and internal theft, you need to implement internal controls in every area of your organization, including management and your accounting system. In this article, we’ll be discussing key internal controls your business and non-profit organization should consider implementing on each level, as well as highlight some important methods of strengthening security throughout your entire organization.

Internal Controls on a Management Level
While accounting and financial management may not be your area of expertise, you still need to play an active role in the process. Having a clear understanding of the accounting process and what is occurring with your finances is always a smart idea. Too often we hear of business managers and non-profit leaders putting too much trust in their employees and taking a hands-off approach to bookkeeping. While it’s good to trust your staff, you can never be too trusting (as recent fraud statistics have shown). By taking the following simple steps, you can reduce the risk of fraud and create a culture of responsibility among your management team:

Take an interest in the books. Make it a point to review financial reports periodically and ask questions about any discrepancies you may see. If you don’t understand financial reports or need help identifying key figures, seek the help of a certified public accountant. They can train you on everything you need to know about creating and reading these reports, as well as help you understand how this information impacts the everyday operations of your business or organization.
Create an ethics policy. If you want to set your employees up for success, make sure they have a clear understanding of what you will and will not tolerate as an organization. Create a written policy that outlines your policy for ethics and business integrity and ensure that all of your employees sign it. Perform an annual review of this policy to adjust for changes in the work environment.
Check in on your employees regularly. The most successful business managers and non-profit leaders have established a clear presence among their teams. Employees who know they are being constantly checked in on are less likely to engage in fraud and theft. By establishing a culture of oversight and review, you are protecting your business or organization from substantial losses.
Perform random reviews of important reports and financial documents. While it’s always a good idea to review financial reports on a monthly basis, management should also choose other reports to spot check. Since your employees won’t be able to predict what you’re looking at, you will have a more honest assessment and be able to identify fraud quickly and easily.

Internal Controls in Your Accounting System

Limiting who has access to your accounting system is the first step you should take when implementing internal controls in the accounting process. Many software systems will even allow you to limit users’ access to certain areas of the system so you can more effectively manage who has full access to your financial information. Assign software rights according to each employee’s responsibilities. For example, if a particular employee is in charge of Accounts Payable, they should not have access to Accounts Receivable or be able to balance the bank statement. Clearly defined roles protects your assets and encourages accountability among your staff.

Here are a few more internal controls to consider implementing:

Perform regular backups of your financial accounting database
Hire an outside CPA to review your books on a periodic basis
Set up an audit trail in your accounting software system
Password protect all financially-sensitive documents
Create a separate sign-on for each user of the system

Internal Controls for Financial Management

Protecting your finances should be your number one priority as a business or non-profit. Keep these methods of strengthening your financial security in mind as you reevaluate your current internal controls:

Create a deposit slip for any cash or checks that come through the door. This could include creating a separate log for all cash and check receipts that is then passed on to the bookkeeper and business owner. Once deposits have been made, the owner can then compare the receipts log to the bank deposits.
Create an approved vendor list and a vendor approval policy. Each vendor must be approved prior to any business being done with that vendor.
Check preparers should be different than the people signing the checks.
Consider having two people sign all checks over a certain threshold.
Avoid issuing emergency checks whenever possible.
Create a policy for submitting employee reimbursements and make sure all employees follow the same policy.
Require receipts for all credit and debit transactions.
Maintain separate cards for different users for accountability.
Reconcile bank accounts and credit card statements monthly.
Monitor online banking activity on a monthly basis.
Require documentation for any payroll changes.
Implement a timesheet approval process before payroll can be completed.

If your business managers or non-profit leaders are not committed to following through on established internal controls, your employees won’t be either. Your management team should be setting an example for the whole organization to follow. For additional methods of strengthening your business and non-profit security, give us a call today. Our certified public accountants would be more than happy to perform a financial management review and help you create more effective accounting processes and stronger internal controls.

Educating Your Board about Nonprofit Financials

As many nonprofits have discovered through experience, not all of your board members are going to understand your nonprofit financial reports and explanations. While many of your board members will come to you with substantial financial experience and understanding, some members of the board will not be as well-versed in reading nonprofit financial reports and understanding financial terms. As a leader in your nonprofit organization, it is your job to ensure that the board understands what is being presented. After all, without financial knowledge specific to nonprofits, your board has no way of understanding the financial implications of their strategic decisions. Arming them with the knowledge they need will not only improve your financial presentations, but it will also help your board make better decisions for the organization.

We’ve created a few strategies to help you educate your board on understanding your nonprofit’s financials. Keep the following in mind as you prepare your board for financial presentations:

Determine what your board needs to know. Don’t overwhelm your board members with useless information they don’t really need. Focus on the specifics related to the type of organization you’re running and instruct them on everything they need to know to uphold their fiduciary responsibilities.
Start with the basics. Once you’ve identified what your board needs to understand to be successful, it’s time to start educating them on the basics. Make sure all board members understand the purpose behind (and can read) the statement of financial position, statement of activities, and statement of cash flows. Your board will need to understand each of these statements, be able to link them together, and find the answers to their financial questions. Keep the format of these reports consistent so as not to confuse your board.
Make sure they understand accrual accounting. Your board members need to understand the basics of accrual accounting and be able to understand terms such as “deferred revenue” and “prepaid expense”. This may take some time to explain, but we promise it’s worth the effort in the end. It will save time and efficiency at meetings, as you won’t have to partake in lengthy discussions clearing up accounting questions and can focus your efforts on solving the real financial issues.
Use your financial presentations as a teaching experience. If you can, carve out 10 – 20 minutes to go over specific accounting items with your board members during the meeting. Create a set plan of topics you’d like to cover across the year and work them into your financial presentations and meetings. You’d be surprised by how much you can cover in a year.
Send board materials and preparatory items prior to the meeting. Don’t expect your board members to learn everything on the spot; give them time to review concepts before the meeting so you have more time for valuable discussion.
Use visuals in your presentations. As the saying goes, a picture speaks a thousand words. Demonstrate key financial concepts using graphs and charts. Present financial data in graph and chart form as well. This will not only help keep the board interested in your presentation, but it will also help them retain what they are learning.
Bring in an accountant or financial consultant. Have your accountant or financial consultant drop in periodically to clarify the concepts you have been teaching.
Make the information relatable. Find a way to make the information you are presenting relatable to your board members. For example, if one of your members is a corporate businessman, discuss how to calculate the return on investment (ROI) of a new program. If your financial information cannot be easily related to the people making the decisions, the decisions won’t be quality.

Not all of your board members will be financial experts, but you can help them understand the basics so they make effective decisions for the organization. Your board members have a fiduciary responsibility, and it’s important to help them remember that. If you could use some help explaining nonprofit accounting basics to your board members, we can help! Check out our nonprofit accounting services to see how we can help you.